Lecture 10

Use the following information to answer question 1 to 3:

Suppose that Boeing (US company) sold airplane to Lufthansa (German company) on credit and invoiced 20 million payable in six months. Two companies agree to share the currency risks. In the Price Adjustment Clause, the neutral zone is $1.14/ - $1.26/, the base rate is $1.2/; and both parties will share the currency risk beyond a neutral zone. How much each party have to pay/receive if

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Question 1

0.4pts

How much each party have to pay/receive if the exchange rate is $1.17/

a. Boeing receives $20 million; Lufthansa pays 17.094 million.

b. Boeing receives $23.4 million; Lufthansa pays 20 million.

c. Boeing receives $20 million; Lufthansa pays 20 million.

d. Boeing receives $24 million; Lufthansa pays 20 million.

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Question 2

0.4pts

How much each party have to pay/receive if the exchange rate is $1.08/

a. Boeing receives $21.6 million; Lufthansa pays 20 million.

b. Boeing receives $23.4 million; Lufthansa pays 21.67 million.

c. Boeing receives $24 million; Lufthansa pays 20 million.

d. Boeing receives $22.2 million; Lufthansa pays 20.56 million.

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Question 3

0.4pts

How much each party have to pay/receive if the exchange rate is $1.32/

a. Boeing receives $24 million; Lufthansa pays 18.18 million.

b. Boeing receives $24.6 million; Lufthansa pays 18.64 million.

c. Boeing receives $26.4 million; Lufthansa pays 20 million.

d. Boeing receives $25.8 million; Lufthansa pays 19.55 million.